From adopting technologies like AI, blockchain, and ML, disrupting conventional underwriting processes and risk assessment, and navigating changing customer expectations and regulations, insurers are on a journey to modernizing their legacy landscapes.
What’s more, the positive impact of the digital transformation of insurance extends to both business stakeholders and customers, and business leaders are using technological innovations to leapfrog their competition.
Throughout this article, we take a closer look at the key technology trends in the insurance industry, how this technology is automating the different aspects of insurance operations, and the challenges and roadblocks that insurers need to overcome.
Key technology trends in the insurance industry
Let's look at the technology trends driving insurance digital transformation that are most relevant to insurers and examples of how insurance companies can utilize these trends.
#1. Technological advancements
Predictable and repeatable tasks can be easily handled by automation and AI/ML solutions, so underwriters can focus on fine-tuning cases that need higher-level decision-making.
A) Artificial intelligence (AI) and Machine Learning (ML)
Imagine a scenario where a customer is applying for vehicle insurance. As they type their requirements in a chat box powered by ChatGPT or other Large Language Models (LLM), the conversational bot collects all the information. It then hands it over to the anonymizer bot, which then generates a digital twin that then generates quotes personalized to the customer.
After the customer selects the insurance, the insurer can then automate and expedite the underwriting and claim processing through data augmentation, AI to detect anomalies, and Subject-Verb Object (SOV) extraction.
Here’s why this future is not far-fetched. There are point-solutions being built for individual aspects of the insurance supply and value chain. The real challenge here would be to integrate them into a seamless solution at scale.
B) Intelligent document processing
The insurance sector processes vast volumes of documents and images for underwriting, claims processing, and policy servicing, among others. The communication associated with all these claims involves documents and data that are unstructured, such as forms, emails, and more.
Traditionally, this data is extracted manually by underwriters and insurance brokers, with some support from legacy technologies such as OCR (optical character recognition). This process is time-consuming, resource-intensive, and error-prone, making it practically impossible for larger insurance companies with millions of customers. Low automation rates and incurracy make OCR partial solutions as they are heavily reliant on oversight by humans.
This is where advanced intelligent document processing (IDP) solutions improve the accuracy of extracted data by automating the data extraction process. The result is lower costs and faster claim turnaround times compared to manual intervention.
C) Data analytics
Within the property and casualty (P&C) sector, data analytics capabilities are table stakes. As per McKinsey, leading insurers have seen loss ratios improve by 3-5 points, new business premiums increase by 10-15% percent, and retention in profitable segments jump 5-10% with advanced data and analytics underwriting.
In addition, big data analytics helps insurance providers improve their predictive modeling using a mix of real-time and historical data. The insurers’ decision-making skills also improve, allowing them to make accurate decisions based on the customer’s risk assessment.
Big data analytics works hand-in-hand with AI algorithms to enhance fraud detection and decrease overall risk exposure for insurers.
D) IoT (Internet of Things) devices
IoT devices improve monitoring of the insured object and extract real-time data about the object’s condition. These devices, known as telematics insurance devices, are mostly prevalent in the auto insurance industry. They track the vehicle’s average speed, engine health, and vehicle location for the best estimation of risk.
Now, some might argue that attaching IoT devices that transmit locations infringes on the privacy of the user. On the contrary, these life-saving tools allow insurers to alert the authorities about accidents, ensuring swift action. In addition, telematics insurance can reduce claims expenses by around 10-15% annually.
#2. Changing customer expectations
Over the last decade, customers have adapted to digital searching and shopping for insurance products. They want to handle simple transactions such as address changes and requests for contract information and make payments digitally, and this preference has intensified since the COVID-19 pandemic.
The need of the hour for insurers is to make their digital tools and self-service channels simple for customers to embrace with confidence. Other than that, they require risk-prevention strategies that resonate with customers.
Another use case of digital transformation in insurance is the introduction of omnichannel systems to make products more accessible to customers from the convenience of their homes. This includes:
- 24/7 customer support in the form of bots or human reps
- Unrestricted access to information
- Use big data analytics to personalize products and generate high-quality leads for agents
- Making digital processes as simple and convenient as possible
#3. Regulatory changes
Insurers regularly handle sensitive customer information like ID proofs, addresses, and bank details, among many others. Considering the constant evolution in their product line-up, they will likely require more information from customers regularly.
Advancements in technology enable carriers to effectively store and manage complex customer data while minimizing security breaches. Implementing a zero-trust security architecture, where all external and internal users are authenticated, creates resilient networks and prevents cyber threats.
Furthermore, software systems with smart sorting automatically store or archive customer data according to GDPR and SOC-2 compliance. Automating the sorting of processed documents saves time and prevents accidental misuse or leakage of sensitive information through human negligence.
#4. Growing competition from InsurTech
Technology-powered forward-thinking insurance providers are offering sophisticated platforms to their customers that are equipped with more advanced comparison tools and customization options, offering a level of control that is hard to find with legacy insurers.
Established insurance companies need to continuously improve their processes and make them more customer-centric through digital transformation, which in the long run increases customer retention and provides a competitive edge.
Digital transformation in insurance operations
Applications of advanced technologies have already transformed a few of the most important yet resource-intensive operations for insurance providers. They include:-
A) Underwriting and risk assessment
Underwriting relies on swift decision-making and precise risk assessment. This balance is now evolving as automation takes center stage. Insurers are focusing on optimizing the underwriting process to maximize their efficiency with increased risk assessment through AI-powered data analytics.
Automation not only speeds up the underwriting timeline and decision-making but also elevates precision, a feat that manual methods find challenging to achieve.
Transforming insurance operations through underwriting involves maintaining data quality while adhering to regulatory requirements.
Using IDP software like Docsumo transforms the underwriting process in the following ways:
- To begin with, it extracts data granularly from the customer applications and automatically populates the relevant forms for faster onboarding.
- The AI algorithm creates smart associations and minimizes human effort. It helps fast-track the approval process.
- Lastly, the extracted data is directly pushed into the database for storage and/or passed to downstream apps for further processing.
B) Customer engagement
The advent of technology allows insurance companies to connect with customers through their mobile devices to improve customer engagement. Dedicated mobile portals and apps offer vital information about the customer’s policy. These apps send push notifications to remind users about upcoming premium payments or update them about their claim processing.
The insurer's mobile app allows users to directly buy or claim their insurance policy without visiting physical stores. In addition, the customer can modify their personal information and payment information and upload and download important documents without customer support.
If the customer stumbles while navigating the app, they will have access to self-service portals. These self-service portals have how-to guides, detailed video walkthroughs, decision trees, blogs, articles, and FAQs. This deviation from traditional customer support services offers autonomy to policyholders and empowers them to take ownership. This process instills a sense of independence in the customer that directly affects their engagement and satisfaction levels.
C) Claims processing
Claim processing has been a time-consuming and complicated procedure, often leading to frustrations and multiple rounds of revisions. The current wave of digital transformation in insurance focuses on reducing redundancies and introducing AI algorithms to streamline the claim approval process.
The algorithm scans through the provided data to search for anomalies to highlight fraudulent activities. Next, if free from unusual activities, the information is indexed and prepared for review.
In parallel, the IDP software extracts data using optical character recognition from ID proofs, invoices, receipts, and other relevant documents. The collected data is verified with the indexed data before being sent to the relevant authority for approval.
The AI-enhanced automated claims processing workflow increases employee productivity and allows them to focus on crucial business tasks instead of manually verifying documents. As per McKinsey’s report, insurance companies can reduce the cost of claims journey by 30% using digital transformation technologies and increase their profitability.
Challenges and roadblocks in insurance digital transformation
Ironically, the challenges and roadblocks when it comes to adopting digital transformation are more about organizational structure and human-centric issues than technical barriers.
A) Legacy systems
The sunk cost fallacy prevents insurance companies from abandoning their legacy systems due to the fear of losing years of investment in time and resources. Some even argue that legacy systems work well and offer several benefits. However, they fail to realize that outdated systems create bottlenecks that affect employee productivity.
To add to the woes, this software often lacks the latest security updates and is highly prone to brute-force hacking and malware. Legacy technology is also difficult to integrate with third-party software due to a lack of APIs.
B) Data security and privacy concerns
Legacy systems are inflexible and require extensive work to make them compliant with changing regulations. In some cases, the system might fail to understand the nuances of privacy laws, leading to unexpected violations of GDPR and CCPA regulations.
As for the new software, there may be uncertainties about its level of security against cyberattacks. The key here is to choose platforms that are compliant with GDPR and other national and international security standards.
For the healthcare industry, select a vendor with HIPAA certification. SSL encryption also adds an extra layer of security to protect customer data from cybercriminals.
C) Talent and skill gaps
Implementing new software also means training employees. However, employees who are used to legacy systems have a learning curve initially to adopt new systems, which could lead to a low adoption rate.
Sure, new-age software improves productivity compared to traditional and manual technologies; however, it may require a dedicated team of skilled professionals for maintenance and operation.
While digital transformation creates new jobs, it might be challenging for the organization to find the right fit for the role. The lack of skilled professionals in the talent pool and the lower adoption rate amongst old employees create an opportunity cost that overshadows the ROI of software implementation.
D) Resistance to change
In some cases, upper management refuses to accept digital transformation, citing irrational reasons that eventually lead to suboptimal outcomes. Now, their resistance to change often stems from siloed decision-making that generates inefficiencies at every stage of the insurance value chain.
Other times, internal employees view digital innovation as a threat to their jobs. For example, customer support staff could consider the implementation of chatbots as a means to replace them rather than thinking of it as a productivity enabler.
Future trends in insurance digital transformation
Understanding the technology trends in the insurance industry prepares organizations to stay relevant by constantly adapting to the changes. Here’s a list of future trends and key drivers that are on the horizon.
A) Blockchain for security and transparency
Blockchain technology is known for its robust security features, transparency, immutable storage systems, and decentralized validation systems. Insurers are still exploring the idea of integrating it into their systems to improve customer satisfaction. But when the blockchain is adopted without restriction, here’s how it will look-
B) Instant validation
The customer does not need to reupload their personal information multiple times. They only have to do it once, and the software retrieves it from the blockchain through highly secure channels after authorization from the user.
C) Data protection
As long as the user has the key, no institution can freely access and misrepresent their personal data.
D) Smart contracts
Smart contracts automatically trigger claim payouts based on certain events. For insurance companies, the smart contracts process claims with minimal human input.
E) Telematics and usage-based insurance
Usage-based insurance is a new type of insurance that charges premiums based on actual product usage as opposed to its estimated usage. For example, this allows low-mileage drivers to enjoy their vehicles without paying the expensive premium amount.
The vehicle's usage is tracked through small IoT devices that are connected to the car. It tracks the car’s movements. Some insurance companies also offer flexible premium plans where safe driving is rewarded with discounts and rash driving is penalized with higher premiums.
The evolving role of IDP in insurance
IDP platforms for insurance are an ideal choice for carriers that do not want to overhaul their entire workflows but still want to leverage the benefits of automation and AI.
IDP software is the best solution for extracting data, texts, and images from unstructured documents, like photos of damage, adjuster’s reports, and damage estimates, for further validation. The extracted data is stored according to business parameters and the relevant privacy regulations.
This simple algorithm can automate 85% of the submitted documents, reducing the claim cycle and increasing the process capacity by 4X.
On the other hand, the software can also be used to digitize physical customer documents and help prepare a solid foundation for digital transformation.
Case Study: Using IDP for insurance digital transformation
Commercial real estate organization Arbor Realty Trust struggled to process documents for its clients. The challenges included:-
- Trouble processing large amounts of insurance documents in varying formats received through multiple channels
- Manually record Acord forms and flood certificates
- Difficulty in processing semi-structured forms and certificates
- Lack of built-in validation procedures on captured data
- Double manual entry for all documents
Using Docsumo’s document AI and smart data extraction APIs, Arbor automated its insurance compliance. This included:
- 95% straight-through processing time (STP)
- The OCR module extracted data with over 95% accuracy
- API integration with the platform prepared it for ingesting unstructured documents, like Acord 25, 28, and the Elevation certificates.
- Contextual validation along with correction algorithms.
- The data was extracted in JSON format into downstream software for further analysis.
Results after using Docsumo to automate data extraction:
- 99% data extraction accuracy with intelligent automation
- 10X faster processing of unstructured and semi-structured data
- 95% touchless processing using smart data validation rules
Implementing a digital transformation in insurance is a tall order that requires leadership’s buy-in, setting up a tech team, budget approvals, automating individual processes, and then designing how it all combines seamlessly at the organizational level.
If you have yet to automate document processing, implementing an intelligent document processing platform (IDP) is a good start that is comparatively easy to implement.
Get rid of manual data processing using Docsumo’s document AI. Sign up for a free trial.